Help me help you

I think we're going to be hearing a lot more of this over the next few months:

Treasury Secretary Henry Paulson, at a housing conference yesterday, said he is "aggressively pursuing" an agreement with lenders and investor groups to freeze rates on subprime adjustable-rate mortgages at their original levels. The proposal, aimed at helping homeowners who would fall behind in their payments at higher rates, is designed to prevent a surge in foreclosures next year. About 1.5 million subprime adjustable-rate mortgages are scheduled to reset to higher rates in 2008.

But as outlines of the plan become known, some homeowners are complaining that the effort isn't fair to borrowers who didn't overextend themselves. Others argue that the government shouldn't be involved in perpetuating a housing bubble that needs to deflate. A key question: How far should you go to help borrowers who can't pay their bills?

"People have to be responsible for their own actions," says Harry Lancz, a small-business owner in Traverse City, Mich. He holds a pair of fixed-rate mortgages, one for his primary residence, which has been for sale for six months, and one for a second home in Louisiana. "What are you going to do when their credit cards get due and they can't pay? Are you going to bail them out on that, too?"

I said in my previous post that I'm not sure it matters who's at fault, but of course, politically it does matter. Borrowers may have had help getting in over their heads, but at the end of the day, "variable interest rates vary" is not in the realm of things it is unreasonable to expect them to have understood when they signed on for a gigantic mortgage. Indeed, many of the defaulters seem not to be able to afford their teaser rates, which is certainly something they should have been able to figure out on their own. One of the reasons that I do not currently own a home is that I cannot afford one. Now I get to pitch in my tax dollars to bail out people who also could not afford a home, but went ahead and bought one anyway.

I can't say that this thought is keeping me awake nights; keeping people from losing their homes, however stupidly acquired, strikes me as a better use of my tax money than much of what the government does, especially if this has the side effect of forestalling a financial crisis. And the cost of it is likely to be small compared to, say, invading Iraq or buying prescription drugs for affluent seniors. On the other hand, I am a contented renter, not a family crammed into a small home they could afford on a fixed rate, watching neighbours in bigger houses get a helping hand from Uncle Sam.

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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